Broker tips: Cable & Wireless, Premier Foods, C&C

1st Dec 2009 13:13

ING has upgraded Cable & Wireless ahead of the telecom firm's demerger, which the broker reckons makes a bid for one or both parts of the company more likely.According to ING, '65% of recent UK demergers have resulted in subsequent acquisitions.' In justifying its upgrade of the stock to 'buy', ING said: 'We find no clear evidence that companies outperform in the run-up to demerger, but a high proportion of UK demerged assets have been acquired at significant premiums, and being early doesn't seem to have hurt too often.'The broker thinks that the Worldwide division of Cable & Wireless (C&W) could prove an enticing acquisition. 'It is largely a one country operation with strong growth prospects and is complementary to operators with strong UK presence, while CWI [Cable & Wireless International] also has attractive assets.' The International division is also 'geared to an economic rebound.'The 12-month target price has been raised to 165p from 155p. Premier Foods faces a tough 2010, reckons JPMorgan Chase, but based on recent underperformance of the shares the US broker has upgraded its rating on the stock.JPMorgan (JPM) now rates the shares as 'neutral', having previously advised clients to be underweight in the stock. The upgrade is on valuation grounds, following the 23% price fall in the stock since mid-October, which has brought the share price below JPM's price target of 36p. The broker is projecting 1.7% sales growth for Premier in 2010, some way below the market consensus of 3.7%. 'The brand extension strategy may help top line growth but quite a bit of those benefits were already played out in 2008 and 1H09, in our view,' JPM analyst Pablo Zuanic states. Magners cider maker C&C has had a tough time of it since rivals muscled in on its 'cider over ice' market, but Citigroup thinks the acquisition of The Gaymer Cider Company for £45m could prove a winner.Citi has crunched some numbers and reckons the deal could be earnings enhancing to the tune of 3-5% by fiscal 2012/13.'This deal is strategically sound in our view. It gives C&C: (1) further scale in GB [Great Britain]; (2) a broader cider portfolio with which to complete with Heineken and (3) a sales force and presence in the off trade,' Citi analyst Liz Hartley opines.The broker has reiterated its 'buy' recommendation and €2.95 target price. 'While the group's medium-term focus will now be on integration (ABI and Gaymer assets), we believe C&C is now a more tangible competitor to market leader Heineken,' Hartley concluded.